9.00-10.15am_How to Initiate a Performance Framework (Pokar Khemani) ENGLISH

8/14/2019 9.00-10.15am_How to Initiate a Performance Framework (Pokar Khemani) ENGLISH

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How to Initiate aHow to Initiate aPerformancePerformance

Framework inFramework inBudgetingBudgeting

Pokar KhemaniPokar Khemani

ICGFM Annual Winter ConferenceICGFM Annual Winter Conference

December 2009December 2009


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OutlineOutline

Why Performance FrameworkWhy Performance Framework Performance Framework in BudgetingPerformance Framework in Budgeting Introducing Performance FrameworkIntroducing Performance Framework

Evolution, Prerequisites and Key TasksEvolution, Prerequisites and Key Tasks A well-defined implementation strategyA well-defined implementation strategy

Line-item to Program-based BudgetingLine-item to Program-based Budgeting Program Classification: Key AspectsProgram Classification: Key Aspects Budget Classification, Chart of Accounts and Accounting SystemBudget Classification, Chart of Accounts and Accounting System Performance Specification: Common Issues, SMART IndicatorsPerformance Specification: Common Issues, SMART Indicators Performance: Monitor and ReviewPerformance: Monitor and Review Evaluations and Spending ReviewsEvaluations and Spending Reviews Program Budgeting and MTEFProgram Budgeting and MTEF

Key MessagesKey Messages Concluding RemarksConcluding Remarks


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Why PerformanceWhy Performance

FrameworkFramework Increasing public demands for greaterIncreasing public demands for greater

government accountability, transparency andgovernment accountability, transparency andeffectivenesseffectiveness

Mounting pressures on public expenditure,Mounting pressures on public expenditure,calls for improved services for the samecalls for improved services for the samemoneymoney

Need for a more responsive system fromNeed for a more responsive system frompoliticians and public officialspoliticians and public officials

Performance of fiscal policy and budgetPerformance of fiscal policy and budgetmanagement is vital for overall performancemanagement is vital for overall performance


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Performance of BudgetPerformance of Budget

ManagementManagement

Three goals:Three goals:

Macroeconomic stability and aggregate fiscalMacroeconomic stability and aggregate fiscal

disciplinediscipline

Allocation of resources to the strategicAllocation of resources to the strategic

priorities expressed by the societypriorities expressed by the society

Efficiency in the use of resources in theEfficiency in the use of resources in the

implementation of government policiesimplementation of government policies

All three are closely interwoven andAll three are closely interwoven and

ultimately relate to efficiency.ultimately relate to efficiency.


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Performance Framework inPerformance Framework in

BudgetingBudgeting Wide variety of approaches, practices, and methodsWide variety of approaches, practices, and methods

considerable literature has been produced considerable literature has been produced Common theme is applying the budget to promoteCommon theme is applying the budget to promote

performance by the appropriate use of performanceperformance by the appropriate use of performanceinformation at each stage of budget cycle to informinformation at each stage of budget cycle to informdecisions on resource allocations and improvedecisions on resource allocations and improveefficiency of resource usageefficiency of resource usage

No single model: performance, program, output,No single model: performance, program, output,results-oriented budgeting a programmaticresults-oriented budgeting a programmaticapproach is being commonly followedapproach is being commonly followed

OECD defines performance budgeting as relatingOECD defines performance budgeting as relatingfunds allocated to measurable results in terms offunds allocated to measurable results in terms ofoutputs and/or outcomes and evaluationsoutputs and/or outcomes and evaluations


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Performance Framework inPerformance Framework in

Budgeting: EvolutionBudgeting: Evolution Performance budgeting has a long history:Performance budgeting has a long history:

1960s saw the program budgeting1960s saw the program budgetingtechniques developed in USA spread totechniques developed in USA spread tomany countriesmany countries

In 1980s and 1990s, UK, New Zealand,In 1980s and 1990s, UK, New Zealand,Australia, Canada and various OECDAustralia, Canada and various OECDcountries developed some form ofcountries developed some form ofperformance-based budgetingperformance-based budgeting

In recent years widespread interest andIn recent years widespread interest andactivity in this area in Eastern Europe, Latinactivity in this area in Eastern Europe, LatinAmerica, Asia and Africa region a worldAmerica, Asia and Africa region a worldwide movementwide movement


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Performance Framework:Performance Framework:

Some PrerequisitesSome Prerequisites

Credible macroeconomic and fiscalCredible macroeconomic and fiscalframeworkframework

Integration of budgeting and planningIntegration of budgeting and planning

Well developed budget preparation processWell developed budget preparation processwith a MT perspective credible budgetwith a MT perspective credible budget Sound budget execution, accounting andSound budget execution, accounting and

reporting frameworkreporting framework

Strengthened PFM legal frameworkStrengthened PFM legal framework Clarity on budget roles of legislature andClarity on budget roles of legislature andexecutiveexecutive

Get basics work wellGet basics work well


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Introducing PerformanceIntroducing Performance

Framework in Budgeting:Framework in Budgeting:

Key TasksKey Tasks A well defined implementation strategyA well defined implementation strategy Traditional (Line- Item) to Program- based BudgetingTraditional (Line- Item) to Program- based Budgeting

(PBB)(PBB)

Program Classification: Key AspectsProgram Classification: Key Aspects Enhance Budget Classification, Chart of Accounts, andEnhance Budget Classification, Chart of Accounts, and

Accounting System to accommodate PBBAccounting System to accommodate PBB Performance specification indicators and targetsPerformance specification indicators and targets

Performance: Monitor and ReviewPerformance: Monitor and Review Program/Spending ReviewsProgram/Spending Reviews Program Budgeting and MTEFProgram Budgeting and MTEF


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PBB ImplementationPBB Implementation

StrategyStrategy Well defined reform objectivesWell defined reform objectives

Process for introducing and managingProcess for introducing and managing

reformsreforms

Institutional and human capacities neededInstitutional and human capacities needed

to drive and support reformsto drive and support reforms

Sequencing and pacing of reforms: Pilot vs.Sequencing and pacing of reforms: Pilot vs.

Big Bang approachBig Bang approach Executive and Legislature commitmentExecutive and Legislature commitment


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Traditional & ProgramTraditional & Program

BudgetsBudgets Traditional BudgetsTraditional Budgets

based largely on line items e.g. salaries,based largely on line items e.g. salaries, travel,travel,overheads, etc.overheads, etc.

no indication of objective/outputno indication of objective/output primarily incremental and annualprimarily incremental and annual

Program BudgetsProgram Budgets line items identified to programs, keep key input controls line items identified to programs, keep key input controls

current, capital, interestcurrent, capital, interest programs with well defined outputs and outcomesprograms with well defined outputs and outcomes a medium-term perspectivea medium-term perspective

performance informs the budget processperformance informs the budget process financial flexibility and accountabilityfinancial flexibility and accountability


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A Programmatic ApproachA Programmatic Approach

to Budgetingto Budgeting Basis of budgeting in many countries, a building block forBasis of budgeting in many countries, a building block for

performance framework in the budget processperformance framework in the budget process Spending classified by programsSpending classified by programs Programs reflect expenditure on groups of servicesPrograms reflect expenditure on groups of services

(outputs) and have common broad objectives (intended(outputs) and have common broad objectives (intended

outcomes)outcomes) Programs should be linked with the organizationalPrograms should be linked with the organizational

structure to establish clear accountability for performancestructure to establish clear accountability for performance Programmatic classification of budget should aim atProgrammatic classification of budget should aim at

strengthening the link between policy objectives, planningstrengthening the link between policy objectives, planning

and allocation of resourcesand allocation of resources


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Program Classification:Program Classification:

Key AspectsKey Aspects

Development of line-ministry program structures should be aDevelopment of line-ministry program structures should be acollaborative effort between MOF and line ministriescollaborative effort between MOF and line ministries

Number of programs should be relatively limitedNumber of programs should be relatively limited Program structure consists of various layers with differentProgram structure consists of various layers with different

nomenclature - most common three layers: program, sub-nomenclature - most common three layers: program, sub-program and activitiesprogram and activities

Have a Corporate Services program to include ministry wideHave a Corporate Services program to include ministry widecommon services in early yearscommon services in early years

Programs should include both the current and capital budgetPrograms should include both the current and capital budget

Programs should not normally stretch over several ministries-Programs should not normally stretch over several ministries-for interministerial programs, accountability needs to befor interministerial programs, accountability needs to beestablished at the level of sub-programs and activitiesestablished at the level of sub-programs and activities


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Budget Classification, Chart ofBudget Classification, Chart of

Accounts and AccountingAccounts and Accounting

System: A Must for PBBSystem: A Must for PBB Review and refine the current budgetReview and refine the current budget

classification structure with the introductionclassification structure with the introductionof program budgetingof program budgeting

The chart of accounts (COA) needs to beThe chart of accounts (COA) needs to berevised to be fully consistent with the revisedrevised to be fully consistent with the revisedbudget classification structurebudget classification structure

Prepare a well-designed COA codingPrepare a well-designed COA codingstructure to support the accounting systemstructure to support the accounting system

The accounting system and the payrollThe accounting system and the payrollsystem needs to be enhanced and adopt thesystem needs to be enhanced and adopt thenew budget classification and COAnew budget classification and COA


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Performance SpecificationPerformance Specification

Common IssuesCommon Issues Need for right type of robust performance indicatorsNeed for right type of robust performance indicators Better balance of output and outcome indicators andBetter balance of output and outcome indicators and

improved specification of outputsimproved specification of outputs Various dimensions of output performance includingVarious dimensions of output performance including

quantity, quality, efficiency and cost; lack of volumes forquantity, quality, efficiency and cost; lack of volumes for

key outputskey outputs Mixing of outcome and output indicators, outcomes areMixing of outcome and output indicators, outcomes are

not expressed in a measurable form, and some outputsnot expressed in a measurable form, and some outputsare specified in a way that is outside the control of theare specified in a way that is outside the control of theministry to deliverministry to deliver

Performance Targets: too many, difficult to measure,Performance Targets: too many, difficult to measure,absence of baseline indicators, arbitrary targets (too easy,absence of baseline indicators, arbitrary targets (too easy,too tough), reliability issuetoo tough), reliability issue


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Performance SpecificationPerformance Specification

SMART ApproachSMART Approach

SMART:SMART: SSpecificpecific What is the most critical success factor(s)? What is the most critical success factor(s)? MMeasuredeasured What are the quantifiable characteristics? What are the quantifiable characteristics?

AAchievablechievable Can you improve on past performance? Can you improve on past performance? RRelevantelevant Do clients think the target is most Do clients think the target is most

important?important? TTimedimed How quickly can it be achieved? How long How quickly can it be achieved? How long

will it take to respond to needs?will it take to respond to needs?


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Standards for IndicatorsStandards for Indicators

and Targetsand TargetsStandardStandard Good PracticeGood Practice Poor PracticePoor Practice

SSpecificpecific Patients with heartPatients with heart

diseasedisease

IllnessesIllnesses

MMeasuredeasured Recovery rateRecovery rate ImproveImprove

AAchievablechievable 5% increase on last year5% increase on last year Worlds best practiceWorlds best practice

RRelevantelevant National policy priorityNational policy priority Doctors preferenceDoctors preference

TTimedimed One yearOne year In the futureIn the future

P f M itP f M it


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Performance: MonitorPerformance: Monitor

and Reviewand ReviewActionAction IssueIssue ExampleExample

Data collectionData collection What do you need to measureWhat do you need to measureindicators and targets?indicators and targets?Is collection cost effective?Is collection cost effective?

Cost by sub-programmeCost by sub-programmeServices deliveredServices deliveredChanges observedChanges observed

Data recordingData recording What system do you need toWhat system do you need tokeep data securely?keep data securely?

Current system e.g. spreadsheetCurrent system e.g. spreadsheetNew system e.g. Oracle BSCNew system e.g. Oracle BSC

Collation & analysisCollation & analysis How does the informationHow does the informationrelate to programmes andrelate to programmes andtargets?targets?

Time series, variance (budget-actual),Time series, variance (budget-actual),achievement rate, unit costachievement rate, unit cost

ReportingReporting Who are the users?Who are the users?What do they need to know?What do they need to know?When do they need it?When do they need it?

What format(s) do they prefer?What format(s) do they prefer?

Senior management, Parliament/publicSenior management, Parliament/publicProgramme achievements, efficiencyProgramme achievements, efficiencyMonthly, annuallyMonthly, annually

Tables, charts, text, videoTables, charts, text, video

Quality assuranceQuality assurance How can you be sure,How can you be sure,objectively, that the data areobjectively, that the data areaccurate and appropriate?accurate and appropriate?

Internal checkingInternal checkingExternal peer reviewExternal peer reviewExternal auditExternal audit


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Program Evaluations &Program Evaluations &

Spending ReviewsSpending Reviews A variety of models and approaches: annual and periodic,A variety of models and approaches: annual and periodic,

targeted and comprehensivetargeted and comprehensive UK comprehensive spending reviews are primarily used forUK comprehensive spending reviews are primarily used for

an examination of departments budgetary requirements for thean examination of departments budgetary requirements for thecoming three year period in light of existing spendingcoming three year period in light of existing spendingpressures, opportunities for improving efficiency, and thepressures, opportunities for improving efficiency, and the

costs of new policy proposalscosts of new policy proposals US Program Assessment Rating Tool (PART) assesses theUS Program Assessment Rating Tool (PART) assesses the

management and performance of individual programmes- eachmanagement and performance of individual programmes- eachPART asks departments to answer 25 basic questionsPART asks departments to answer 25 basic questions

Canada evaluations Management Resources ResultsCanada evaluations Management Resources ResultsStructure (MRRS) links strategic outcomes to resources,Structure (MRRS) links strategic outcomes to resources,

performance measures and actual results for all programmesperformance measures and actual results for all programmes

P E l ti &P E l ti &


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Program Evaluations &Program Evaluations &

Spending Reviews: BasicSpending Reviews: Basic

QuestionsQuestions1. What do we do? 2. What are peoplesneeds and expectations?

4. Who should do it ?

7. How should we goabout change ?

6. Who should cover thecosts ?

5. How can we do thisbetter and for less

money?

3. Do we need tocontinue to do it ?

4. Who should do it ?6. Who should cover the

costs ?


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Program Budgeting andProgram Budgeting and

MTEFMTEF Introduction of a program structure improvesIntroduction of a program structure improves

the efficiency of MTEF, both in preparing thethe efficiency of MTEF, both in preparing the

forecasts and later in detailing out the budgetforecasts and later in detailing out the budget

as per the agreed MTEF ceilingsas per the agreed MTEF ceilings A credible MTEF could facilitate linkingA credible MTEF could facilitate linking

resources to policy objectives andresources to policy objectives and

performance multi-year spending allocationsperformance multi-year spending allocations

tied with multi-year performance targetstied with multi-year performance targets


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Some Key MessagesSome Key Messages

Introduction of PBB takes time (4-5 years). Reform needs widespread political support andIntroduction of PBB takes time (4-5 years). Reform needs widespread political support andintellectual acceptanceintellectual acceptance

The role and power of the Ministry of Finance is crucial to the success of PBBThe role and power of the Ministry of Finance is crucial to the success of PBB PBB should focus on budget reforms and linked with wider reforms on performancePBB should focus on budget reforms and linked with wider reforms on performance

management an initiative more than an incremental to the budget reform processmanagement an initiative more than an incremental to the budget reform process Performance information is potentially limitless, complex and expensive to collect, needsPerformance information is potentially limitless, complex and expensive to collect, needs

to be selective. Too many targets create information overloadto be selective. Too many targets create information overload Performance Information needs to be used efficiently and widely, including for improvingPerformance Information needs to be used efficiently and widely, including for improving

resource allocations, managing for better performance and increasing publicresource allocations, managing for better performance and increasing publicaccountabilityaccountability

Establishing some link between financial information and performance information needsEstablishing some link between financial information and performance information needsthe right mix of incentives whether financial rewards should be given for goodthe right mix of incentives whether financial rewards should be given for goodperformance and bad performance should be punished if so, how? Contd.performance and bad performance should be punished if so, how? Contd.


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Key MessagesKey Messages

Empowering Managers is not about removingEmpowering Managers is not about removingcontrols but devolving the responsibility forcontrols but devolving the responsibility forapplying some of them MOF needs to monitorapplying some of them MOF needs to monitoreffectiveness of financial managementeffectiveness of financial management

A change in behavior and culture acrossA change in behavior and culture acrossgovernment is essential - a struggle and long-termgovernment is essential - a struggle and long-termprocessprocess

Realistic expectations needed - what can beRealistic expectations needed - what can beachieved and how long will it takeachieved and how long will it take


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Concluding RemarksConcluding Remarks

Performance Budgeting is a modern management toolPerformance Budgeting is a modern management tooland not a panacea for all evils it is the way to goand not a panacea for all evils it is the way to goforward for public sector efficiency and performanceforward for public sector efficiency and performance

A way forward:A way forward: evaluate the ongoing budget reforms, identify gaps and problems,evaluate the ongoing budget reforms, identify gaps and problems,

and think on solutions and what is achievableand think on solutions and what is achievable prepare a realistic and sequenced reform plan and ensure that thereprepare a realistic and sequenced reform plan and ensure that there

is sufficient capability to support and implementis sufficient capability to support and implement OECD states journey is as important as the destinationOECD states journey is as important as the destination a long-term approach and persistence are needed: it takes time toa long-term approach and persistence are needed: it takes time to

overcome the technical issues and change the behavior of publicovercome the technical issues and change the behavior of public

servants and politicianservants and politician strong leadership and champion for change and reformsstrong leadership and champion for change and reforms


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Thank youThank you

Documents

9.00-10.15am_How to Initiate a Performance Framework (Pokar Khemani) ENGLISH